NOVOAZOVSK, Ukraine – Ukraine accused Russia on Thursday of entering its territory with tanks, artillery and troops, and Western powers said Moscow had “outright lied” about its role and dangerously escalated the conflict.

Russia dismissed the allegations, describing the fighters there as “Russian volunteers.” The Kremlin has repeatedly denied arming and supporting the separatists who have been fighting Ukrainian troops for four months in the gravest crisis between Russia and the West since the end of the Cold War.

NATO said at least 1,000 Russian troops are in Ukraine and later released what it said were satellite photos of Russian self-propelled artillery units moving last week.

NATO caption reads: Russian military units moving in a convoy formation with self-propelled artillery in the area of Krasnodon, Ukraine, well inside territory controlled by Russian separatists. The image was captured on 21 August 2014. There is confidence the equipment is Russian, since Ukrainian units have not yet penetrated this far into separatist controlled territory.

NATO handout

NATO caption reads: “Russian self-propelled artillery units set up in firing positions near Krasnodon, Ukraine. They are supported by logistical vehicles which are likely carrying extra ammunition and supplies. This configuration is exactly how trained military professionals would arrange their assets on the ground, indicating that these are not unskilled amateurs, but Russian soldiers. Russian artillery systems like these have recently shelled Ukrainian positions outside the city of Luhansk in conjunction with a separatist counteroffensive to attempt to break the Ukrainian siege of the city.”

NATO

NATO caption reads: “Military deployment site on the Russian side of the border, near Rostov-on-Don. This location is approximately 31 miles or 50 kilometres from the Dovzhansky, Ukraine border crossing.”

NATO

NATO caption reads: “This photo depicts what are probably six Russian 153mm 2S19 self-propelled guns located in Russia near Kuybyshevo. This site is situated 4 miles, or 6.5 kilometres, south of the Ukraine border, near the village of Chervonyi Zhovten. The guns are pointed north, directly towards Ukrainian territory (see North indicator on image). See image 5 for an overview of where these guns are situated in relation to Ukrainian territory.”

NATO

NATO caption reads: “Wider overview including the position of the self-propelled guns from image 4. Note the North indicator on this image, and remember that the guns are orientated in this location. It is clear that from this location, it would be impossible NOT to fire into Ukrainian territory. This is clearly NOT an exercise; these guns are being used to support separatist forces operating in the territory of Ukraine.”

Two columns of tanks and other equipment entered southeastern Ukraine at midday, following heavy shelling of the area from Russia that forced overmatched Ukrainian border guards to flee, said Col. Andriy Lysenko, a spokesman for Ukraine’s national security council.

“Russian forces have entered Ukraine,” President Petro Poroshenko said in Kyiv, cancelling a foreign trip and calling an emergency meeting of his security council.

He urged Ukrainians to remain calm.

“Destabilization of the situation and panic, this is as much of a weapon of the enemy as tanks,” Poroshenko told the council.

U.S. President Barack Obama spoke with German Chancellor Angela Merkel, and both leaders agreed Russia must face consequences for its actions.

WATCH: Ukrainian PM confirms Russian troops have crossed into Ukraine

“We agree – if there was ever any doubt – that Russia is responsible for the violence in eastern Ukraine,” Obama said. “The violence is encouraged by Russia. The separatists are trained by Russia, they are armed by Russia, they are funded by Russia.”

He added that Russia “has deliberately and repeatedly violated the sovereignty and territorial integrity of Ukraine, and the new images of Russian forces inside Ukraine make that plain for the world to see.”

But Obama ruled out a military confrontation between the U.S. and Russia. He said Russia’s activity in Ukraine would incur “more costs and consequences,” though these seemed to be limited to economic pressure that will be discussed when Obama meets with European leaders at a NATO summit in Wales next week.

He did not deny the Russian presence, saying “there are Russian volunteers in eastern parts of Ukraine. No one is hiding that.”

But Power countered: “A Russian soldier who chooses to fight in Ukraine on summer break is still a Russian soldier.”

tanks and military vehicles rolled into southeastern Ukraine from Russia on Thursday near the city of Novoazovsk.

(Benjamin Simpson/Global News)

Churkin questioned the presence of Western advisers and asked where Ukrainian troops were getting weapons. He said he wanted to “send a message to Washington: Stop interfering in the internal affairs of sovereign states.”

Russian stock markets fell as Switzerland joined the European Union in imposing restrictions on Russian state banks and fears grew that the U.S. and EU could impose more sanctions on Russian businesses and individuals in response to the military escalation. Russia’s MICEX index dropped nearly 2 per cent on Thursday, and major Russian state banks VTB and Sberbank dropped more than 4 per cent.

The strategic southeastern town of Novoazovsk, which has come under shelling for three days, appeared to be in the control of separatists, creating a new, third front in the war. That raised fears they want to create a land link between Russia and the Crimea Peninsula, which Moscow annexed from Ukraine in March. The town lies along a road connecting the peninsula to Russia.

Lysenko said the missiles from Russia were fired at Ukrainian positions about 11 a.m. About 90 minutes later, two columns, including tanks and other fighting vehicles, began an attack, entering Ukraine from Veselo-Voznesenka and Maximovo in the Rostov region of Russia, he said.

A senior NATO official said the estimate of 1,000 Russian troops in Ukraine was a conservative one, adding that another 20,000 Russian troops were right over the border. The troops who entered Ukraine had sophisticated equipment, he said.

“The hand from behind is becoming more and more overt now,” Brig. Gen. Nico Tak said at NATO’s military headquarters.

Russia’s ultimate aim was to stave off defeat for the separatists and turn eastern Ukraine into a “frozen conflict” that would destabilize the country indefinitely, he said.

Russia’s ambassador to the EU, Vladimir Chizhov, told the BBC that “NATO has never produced a single piece of evidence” of Russian troops operating in Ukraine. He said the only active duty Russian soldiers in Ukraine were the 10 captured this week, who Moscow insists had mistakenly wandered across the border.

IN PHOTOS: Scenes from southeastern Ukraine where Russia tanks have reportedly crossed the border

A Pro-Russian rebel walks in a passage at the local market damaged by shelling in Petrovskiy district in the town of Donetsk, eastern Ukraine, Tuesday, Aug. 26, 2014. (AP Photo/Mstislav Chernov)

A Pro-Russian fighter gestures in Troitsko-Khartsyzk, 30 Km east of Donetsk, on August 28, 2014. AFP PHOTO/ FRANCISCO LEONG

A Pro-Russian fighter smokes at a checkpoint in Troitsko-Khartsyzk, 30 Km east of Donetsk, on August 28, 2014. AFP PHOTO/ FRANCISCO LEONG

A villager walks by a unexploded rocket that landed on her backyard in Troitsko-Khartsyzk, 30 Km east of Donetsk, on August 28, 2014. AFP PHOTO/ FRANCISCO LEONG

A Pro-Russian fighter digs a trench in Troitsko-Khartsyzk, 30 Km east of Donetsk, on August 28, 2014. AFP PHOTO/ FRANCISCO LEONG

Speaking in Casteau, Belgium, Tak said that in the past two weeks, “we have noted a significant escalation in both the level and sophistication of Russia’s military interference in Ukraine.”

“Russia is reinforcing and resupplying separatist forces in a blatant attempt to change the momentum of the fighting, which is currently favouring the Ukrainian military,” he added.

NATO also produced satellite images to provide what it called additional evidence that Russian combat soldiers, equipped with sophisticated heavy weaponry, are operating inside Ukraine’s sovereign territory. The grainy images of the terrain near Krasnodon, Ukraine, showed what appeared to be a convoy of military units with artillery, and NATO said it had “confidence the equipment is Russian.”

“This is highly sophisticated weaponry that requires well-trained crews, well-trained command and control elements, and it is extremely unlikely that this sort of equipment is used by volunteers,” Tak said.

WATCH: Protesters gathered outside the Defense Ministry in Kyiv for a second day on August 28, demanding the rescue of Ukrainian forces encircled by pro-Russian separatists in the country’s East.

He said the satellite images were only “the tip of the iceberg” in terms of the overall scope of Russian troop and weapons movements.

Asked about the NATO images, Russian Defence Ministry spokesman Maj. Gen. Igor Konashenkov said in a statement to Russian news agencies that “to comment on this seriously just makes no sense.”

Southeastern Ukraine had previously escaped the fighting that has engulfed areas to the north, and the only way rebels could have reached the southeast was by coming through Russia.

If separatists create a land corridor from Russia to Crimea, it could give them or Russia control over the entire Sea of Azov and the gas and mineral riches that energy experts believe it contains. Ukraine already lost roughly half its coastline, several major ports and significant Black Sea mineral rights in Russia’s annexation of Crimea.

In Mariupol, a city of 450,000 people about 30 kilometres (20 miles) west of Novoazovsk, a brigade of Ukrainian forces arrived at the airport Wednesday, while deep trenches were dug a day earlier on the city’s edge.

National guard spokesman Ruslan Muzychuk told Associated Press reporters in the city that the government has evidence large amounts of weapons have been brought into Novoazovsk from Russia.

He added that national guard reinforcements were taking up positions in Mariupol.

“The positions are being strengthened,” the spokesman said. “The road from Novoazovsk to Mariupol is under the control of Ukrainian troops.”

AP journalists on the border have seen the rebels with a wide range of unmarked military equipment – including tanks, Buk missile launchers and armoured personnel carriers – and have encountered many Russians among the rebel fighters.

In Donetsk, the largest rebel-held city, 11 people were killed by shelling overnight, city officials said.

The leader of the insurgency, Alexander Zakharchenko, said in an interview on Russian state TV that up to 4,000 Russians have fought on the separatist side since the armed conflict began in April.

Heintz reported from Kyiv, Ukraine, and Casert reported from Casteau, Belgium. Also contributing were Peter Leonard in Mariupol, Ukraine; Laura Mills and Lynn Berry in Moscow, Bradley Klapper in Washington; and Cara Anna and Trenton Daniel at the United Nations.